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Wednesday, September 21, 2011

Another Victory for the "Free Market"

Under pressure from the Beijing government General Motors has agreed to provide access to its proprietary electric vehicle technology to its lead Chinese partner.

The move is raising numerous concerns, critics contending that China is, for one thing, using unfair pressure to gain access to technologies that will later be used by its own domestic manufacturers to compete with foreign brands like GM.

I guess this kind of coercion is now known as "free trade."

A few more details about the merger:

But critics note that GM has also faced significant pressure from China to accept the partnership, government regulators threatening to withhold sales incentives for the Volt were GM to have rejected the technology sharing agreement.

Such a move might violate international trade agreements, critics argued. But the more serious concern is that GM may now lose control of key intellectual property. Protection of IP rights has become a critical concern with Chinese businesses routinely ignoring trademarks and copyrights on everything from pop music and movies to pharmaceuticals and automotive design.

In the short term, this move may improve GM's access to the Chinese market, thereby increasing sales and probably the income of some upper-level executives.

However, this surrender of IP may in the long term prove more damaging to GM. The partner for this venture, Shanghai Automotive Industrial Corp., is an entity owned by the PRC government and is no doubt eventually looking to expand on its role in the automotive industry. Plenty of free IP along with billions of dollars of investments from Western companies will no doubt help it in this enterprise.

It's also unclear to me how, in the long term, the empowerment of government-run corporations due to government coercion is an effective path for supporting free market capitalism.